A first? Treasury lifts its cap to DECC

With the Energy Bill due to be published later this week, what did the Energy Secretary agree with the Chancellor? Will the Energy Bill drive £110bn of new investment up to 2020. And how will it affects jobs and energy prices? The Energy Secretary claimed a “durable agreement to unlock billions of pounds of energy infrastructure investment and result in the UK generating more than 30% of its electricity from renewables by 2020.” Will it?

Things to welcome in the Bill:

The Treasury rasing its cap to support DECC’s plans for low carbon electricity investment (the “levy control framework”). Up from £2.35bn in 2013 to £7.6 billion in 2020 (or about £9.8bn with inflation).

Consumers will pay £20 next year to fund clean energy investment, rising to £95 in 2020.

Government will act as a single “counterparty” to contracts with investors for low carbon electricity projects (the so-called Contracts for Difference”).

Powers to introduce an energy “capacity market” to ensure reliable delivery of energy capacity in the future, to help ensure the lights stay at peak demand.

Points to watch:

No 2030 decarbonisation target for the Energy Bill. But the Government may take powers to set a target range for 2030, but not until in 2016.

No mentions of coal. It’s the forgotten fuel. The Government should add Coal to the Gas Generation Strategy promised for the Autumn Statement in December.

December’s Autumn Statement will need to provide much more detail on the annual amounts of the levy control framework to 2020, and how much each fuel tariff will be.

The Bill should help diversify our energy mix to avoid excessive gas import dependency by increasing the amount of electricity coming from renewables from 11% today to around 30% by 2020, as well as supporting new nuclear power and carbon capture and storage commercialisation. The Government promises 250,000 new green jobs – but with no independent analysis to back up this claim. Yet so far, the Bill looks to be broadly consistent with the Committee on Climate Change’s recommendations.

A helpful Greenpeace brief explans the LCF. Essentially, it’s a cap on off-balance sheet spending imposed by the Treasury on the Department for Energy and Climate Change (DECC). The Treasury argues that just as public spending is restrained by the amount of money raised through taxation, so we should also limit the pot of money available for public spending raised through non-tax charges such as surcharges or levies on our electricity bills.

The LCF is a Treasury cap on how much money can be levied on bills. This year it was £2.35 billion. DECC has negotiated £7.6 billion in 2020 (in real terms; nearly £10 billion in 2020 prices).

What does the Levy Control Framework pay for?

The Renewables Obligation;

Feed in Tarrifs;

Warm Home Discount; and

When ROCs are phased out in 2017, the Contract for Difference Feed-In Tariffs.

Lord Deben, Chairman of the Committee on Climate Change, who spoke at the TUC’s annual climate chnage conference in October, welcomed the agreement on the levy control framework. But he added: “We are disappointed that a carbon intensity target will not be set until the next Parliament. This leaves a high degree of uncertainty for investors.”

Written by Philip Pearson

Philip is a former Senior Policy Officer in the TUC’s Economic & Social Affairs Department, working on issues around climate change, energy and transport.

One Response to A first? Treasury lifts its cap to DECC

Coal generation has no place in our future energy mix, simply because its CO2 emissions are more than double those of gas. We must have a firm decarbonisation target. This would necessitate moving rapidly away from coal, thus achieving around half of power sector emissions reductions by 2030. CCS may work and allow some “clean coal” but not much.

Everyone needs to adapt very substanially if we are going to create a sustainable future. Luckily, there are far more potential jobs in the renewable industry than in coal.